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Councilman Chadis looking to regulate payday lenders

Councilman Juan Chadis believes short-term lenders are preying on Lubbock’s most vulnerable citizens, so he’s gearing up to introduce an ordinance aimed at regulating the industry in Lubbock.

Chadis is hoping Lubbock joins the nearly 40 cities across the state that already have a standardized ordinance to reduce the “abusive and predatory lending practices” of short-term lenders known as payday or auto title lenders. These lenders typically offer small loans at higher interest rates due for repayment either on the borrower’s next payday or through repayable installments over a period of time.

The ordinance is modeled after a version crafted by the Texas Municipal League and includes restrictions that limit the amount of payday and car title loans, and how often they can be refinanced.

“It’s affecting my district, it’s affecting my constituents,” said Chadis. “The last thing we want to do is close doors, but these are minor regulations that have been imposed throughout the state. Let’s do the right thing; that’s what this is all about.”

Chadis referred to one story he’d heard from a constituent where he took out a $2,000 loan and started making monthly payments of $250 per month. After seven months he called the lender to ask how much he owed, and was told it was still more than $2,000.

The ordinance will be introduced to the council during a work session at 3:15 p.m. Thursday afternoon ahead of the council meeting at City Hall. There won’t be any action at the work session or council meeting on this item, but Chadis will present the bill and he’s invited several citizens to speak about their experience with payday loans.

He intends to bring the item up for action at an upcoming council meeting.

Representatives for the payday loan industry in Texas whom A-J Media reached out to Tuesday were not immediately available for comment, but at least one Dallas/Fort Worth-based business payday lender The Texas Tribune talked with in June defended the industry by saying it fills a need in the community.

Mayor Dan Pope said there are a lot of factors to consider, and the work session will serve to educate not just the council, but also the community. Pope said even with these proposed restrictions, the need for short-term borrowing won’t go away — so something he wants to discuss is alternatives that are or could be put in place. He said the city won’t be involved in providing these alternative loans, but he’s heard of nonprofit programs that have come in to fill the need for some short-term loans.

“This will be tough,” Pope said. “You want to make sure vulnerable parts of your population aren’t being picked on, but the question becomes ‘what’s the role of city government?’ ”

Chadis said the ordinance seeks to monitor extensions and refinances of loans, which he said is how people get into a debt spiral that’s difficult to overcome. Because of high interest rates and the likelihood the borrower likely has little cash to begin with, Chadis said a common form of relief is to pay for an extension, which can lead to another extension and so on.

The ordinance states the initial borrowed amount of a payday loan may not exceed 20 percent of a borrower’s gross monthly income, and a car title loan (where a borrower’s car title is used for collateral) may not exceed 3 percent of the consumer’s gross annual income or 70 percent of the retail value of the motor vehicle, whichever is less.

The repayments in installments may not exceed more than four installments under the new rule, and each installment must repay at least 25 percent of the principal amount of the extension. The ordinance also says a repayment may not be financed or renewed more than three times.

It calls for record-keeping requirements and consumer language preferences so borrowers understand what they’re signing.

“They in dire straits to start off with, so what happens when that first check bounces? Or it goes through and now you can’t pay your utilities, or you can’t pay your rent? More problems begin,” Chadis said. “There’s heartbreaking stories out there.”

When the Texas Office of Consumer Credit Commission released a report on short-term lenders in 2014, it showed there were 33 store locations in the Lubbock Metropolitan Statistical Area. The average annual percentage rate, or the interest rate for a whole year on the loans, ranged from 204 to 470 percent.

The report said that in the Lubbock MSA, payday and auto title lenders collected $9 million in fees in 2014, and $21 million in refinances, which made up 68 percent of the single-payment loan transactions. On average, the borrowers paid $1.14 for every dollar borrowed.

Chadis said Lubbock does not have the authority to regulate interest rates, but said these regulations will help and are meant to protect the most vulnerable. The ordinance also doesn’t address land use regulations, which have been enacted in more than 10 cities in Texas.

Locally, the Catholic Church has been a strong advocate for payday lending reforms. Jennifer Allmon, the associate director of the Texas Catholic Conference, told A-J Media after a forum in Lubbock last year that the system is stacked against individuals who genuinely want to pay back their debt.

On Tuesday, she said, “We are happy to see the city of Lubbock joining dozens of other cities throughout the state in passing reasonable regulations to protect citizens from predatory practices and the cycle of debt. We hope the state Legislature will enact these reforms statewide in the coming legislative session.”